Canberra, 31 March 2017 – (Australian Securities and Investments Commission media release) — Citigroup Pty Limited (Citibank) has refunded approximately $5 million to around 230,000 customers, for failing to properly disclose that credit card international transaction fees apply to Australian dollar transactions where the merchant uses an entity based overseas to process its transactions.

In early 2016, Citibank began charging international transaction fees for Australian dollar transactions made with merchants located overseas or where the merchant uses a foreign bank or entity to process transactions. This applied to Citibank-branded and white-labelled credit cards, including Virgin Money, Bank of Queensland and Suncorp Bank cards. While Citibank amended its disclosure about the changes to the fees, it failed to properly disclose that Australian dollar transactions processed by an entity outside Australia attracted the fees.

Editor’s Comment

In Australia, the watchdog authorities are vigilant and strong enough to monitor this serious issue, and take action.

No such luck in most of Asia where credit card usage is widespread, but devoid of any check and balance mechanism and/or access to consumer protection redress.

As the Australians have considerable experience in this field, perhaps Asian financial authorities can get a few tips on setting up a similar monitoring system.

This may have led customers to believe that international transaction fees would be charged only when a transaction was made in a foreign currency or with an overseas merchant. For Citibank-issued credit cards, Australian dollar transactions with an Australian website where the merchant uses a foreign bank or entity to process transactions – attract international transaction fees.

Citibank has identified impacted customers of Citibank-branded and Citibank partner-branded credit cards, and has refunded customers with the amount of the fee charged plus interest. Citibank has also updated its disclosure to clearly state that Australian dollar transactions – where the merchant uses a foreign bank or entity to process transactions – will also attract international transaction fees.

Citibank will also refund over $48,000 to 30,174 Virgin Money credit card customers for charging an incorrect percentage amount of the international transaction fee. This error resulted in customers being overcharged by 0.1% of the transaction value.

This follows similar concerns with Westpac’s credit cards, which resulted in 820,000 customers being refunded approximately $20 million in September 2016.

ASIC Deputy Chairman Peter Kell said, ‘Financial product issuers must take care to provide clear disclosure to help consumers understand all circumstances where fees will be charged.’

ASIC’s warning to consumers

ASIC continues to warn consumers to be mindful when making credit card transactions, because transactions in Australian dollars with overseas merchants, or processed by an entity outside Australia (that is, the merchant’s financial institution or payment provider) can attract foreign transaction fees.

This is particularly important in an on-line shopping environment because foreign transaction fees may apply where a merchant’s website has an Australian address (domain name) or where a foreign merchant advertises and invoices prices in Australian dollars.

Consumers should check with the merchant whether the transaction they make is with an overseas-based merchant or processed overseas. Consumers with queries or concerns about the charging of credit card foreign transaction fees should contact their credit card issuer.

ASIC has published guidance for consumers about the charging of international transaction fees by credit card issuers on its MoneySmart website.

Background

A foreign transaction fee is a fee charged by many credit card providers for transactions – including purchases and cash advances:

that are converted from a foreign currency to the Australian dollar; or

that are made in Australian dollars with merchants and financial institutions located overseas; or

that are made in Australian dollars (or other currencies) that are processed outside Australia.

A foreign transaction fee is generally calculated as a percentage of the Australian dollar value of the transaction (typically up to 3.5%). Credit card schemes (such as Visa, MasterCard and American Express) have different rules about foreign transaction fees and the percentage fees will vary depending on the card scheme.

In September 2016, Westpac refunded approximately $20 million to around 820,000 customers for not clearly disclosing the types of credit card transactions that attract foreign transaction fees (see 16-298MR).

Not all cards impose foreign transaction fees. For consumers who make frequent overseas purchases, it is worth shopping around for a card that offers no foreign transaction fees.

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